It has provided France with four years of high drama, with the eccentric workings of a billionaire family laid bare by the secret tape-recordings of a disgruntled butler, and it has opened a can of political worms that could yet scupper Nicolas Sarkozy's hopes of re-election.

But just when it seemed there were no plotlines left to exhaust, the dramatic family feud that tore apart the L'Oreal cosmetics dynasty has flared up again, with round two of a legal stand-off between mother and daughter. This time, in the words of the 89-year-old hairspray heiress at the centre of the row, it threatens to go "nuclear".

Only months after a truce, lawyers for the daughter of the L'Oreal heiress Liliane Bettencourt were in court again on Tuesday, reiterating the argument that started the whole affair: that the elderly Madame Bettencourt is frail, "not of sound mind", not in a fit mental state to run her €16bn (£13.8bn) fortune and is being taken advantage of by her entourage.

Francoise Bettencourt-Meyers, 58, has once again appealed to have her mother placed under guardianship, making her a kind of ward of court.

In 2007, Bettencourt-Meyers's original complaint was that her mother had been taken advantage of by a charmingly eccentric socialite and artist, a one-time gay golden boy of 1970s Paris, on whom she had showered gifts worth almost €1bn.

The saga of the rich old woman's relationship with this irreverent photographer – who peed in her flowerbeds but made her laugh – gripped France.

With this part of the legal battle now closed, Bettencourt-Meyers is questioning her mother's new financial entourage, the lawyer Pascal Wilhelm, who is in charge of running her affairs. Wilhelm has been cleared of any wrongdoing by an ethics investigation by the Paris bar, but the legal battle continues.

The tense court hearing behind closed doors centred on medical reports on the mental health of the ageing Bettencourt, who inherited the fortune of her father, Eugene Schueller, a chemist and one-time Nazi sympathiser who was the inventor of modern hair-dye and founder of L'Oreal. Judges are expected to deliver their verdict on Bettencourt's health and guardianship at a later date.

The mental capacity of France's richest woman really matters in Paris. It could have huge consequences for L'Oreal, the world's biggest cosmetics group and France's most profitable company, 30% of which is held by the Bettencourt family. It is crucial for Sarkozy and his ruling rightwing UMP party, which has been shaken by a series of political scandals laid bare by the family feud.

The Bettencourt saga lifted a lid on dubious and dark world of French oligarchies and political machinations which are now the subject of judicial investigations. Magistrates are looking into whether the frail Bettencourt was made to hand out brown envelopes stuffed with cash to members of Sarkozy's party for his election campaign, or even to Sarkozy himself. Judges are also considering whether Bettencourt engaged in tax evasion while the government looked the other way. Other investigations are considering influence-peddling, and whether a judge and police chiefs close to Sarkozy ordered the secret services to spy illegally on journalists to uncover their sources in the Bettencourt affair. It has raised questions over Sarkozy's moral ability to lead the nation and win re-election.

If the mother and daughter row has been dubbed the nation's soap opera, the very publicly renewed hostilities are now billed as "Bettencourt: Season Two".

The elderly heiress gave a controversial TV interview this weekend, appearing frail and at times confused, saying her daughter was "obsessed" by the legal battle, implying she was greedy and jealous and adding that she loved her daughter once, "but not any more".

The elderly Bettencourt lost her own mother aged five, and now reproaches her only daughter .

Her lawyers said she was ready for "nuclear war" with her daughter and wanted to scrap the terms of a reconciliation deal negotiated in December, reclaiming shares she had given her. Bettencourt-Meyers replied through lawyers that she was not "intimidated" by threats of a nuclear war but was "angry at all this time that has been lost" over her mother's "illness".